An ambitious adventure in fiscal policy

Budget 2017 has been hailed as an ambitious adventure in fiscal policy, and as a serious attempt to please almost all sections of the economy. It carries a series of bold initiatives that could stimulate the economy and provide relief with its tax cuts at a few levels.

The first Budget of Steven Joyce as Finance Minister presented to Parliament this afternoon has impressed some and disappointed some but the overall impression is that it is expansionist with high levels of expenditure and reliefs to almost all strata of the economy.

The Paradox

There was however apprehension as to how the government would be able to achieve higher levels of growth and manage debt, while giving away tax incentives and benefits.

That the budget came as a prelude to the general election hardly enters the equation, for fiscal policies are (they should be) governed by economics and not politics.

While opposition parties were quick to slam the budget as ‘an insult to the hardworking New Zealander,’ ‘one-dollar budget’ and ‘woeful,’ Mr Joyce was clearly guided by Prime Minister Bill English who held the portfolio for eight years with a good measure of success.

Money in pockets

Mr Joyce has proposed to raise income tax thresholds from $14,000 to $22,000 and from $48,000 to $52,000. The following table describes the change, which will come into effect on April 1, 2018.

Current Bracket ($)

New Bracket ($)

Rate

1 – 14,000

1 – 22,000

10.5%

14,001 – 48,000

22,001 – 52,000

17.5%

48,001 – 70,000

52,001 – 70,000

30%

70,001+

70,001

33%

New Zealanders can be certain that these thresholds would not change even if the National government does not return to power on its own or is elected to sit in opposition after the general election on September 23, 2017. No political party would take the suicidal step of altering these reliefs.

There would be an offsetting factor as the Independent Earner Tax Credit, which is a maximum of $520 a year ($10 per week), will be discontinued. It is currently available to individuals with taxable income between $24,000 and $48,000 who are not eligible to receive benefits, New Zealand Superannuation or Working for Families tax credits.

Family Income Package

Mr Joyce has said that the government’s Family Income Package gives more assistance for those most in need, at an annual cost of $2 billion to the exchequer. The changes, which the government estimates would help 1.3 million families by an average of $26 a week, would also become effective from April 1 next year.

The Package includes an increase to the Family Tax Credit rates for children under 16 years of age, so that they align with the rates for children aged 16 to 18 years. There would also be an increase in the abatement rate for Working for Families Tax Credits from 22.5 cents to 25 cents in the dollar and a decrease in the abatement threshold from $36,350 per year to $35,000 per year.

Infrastructure-Rebuild and Expansion

Among the challenges faced by the National government since coming to power in November 2008 were the Global Financial Crisis (GFC) and the Christchurch Earthquakes during its first term and the Kaikoura Earthquakes during its current term.

The government has announced a capital spending allowance of $11 billion for the next four years, a $2 billion increase compared to the December fiscal update and a $7.4 billion increase compared to last year’s Budget.

Housing New Zealand will receive $2.2 billion to invest in the Auckland Housing Programme, accounting for 34,000 new houses to be built in Auckland over the next ten years.